Why Trump’s Tariffs Are Raising Fears of Stagflation in US
One potential consequence of import levies is rising prices paired with slowing growth — an unusual economic predicament that’s haunted the US before.
President Donald Trump’s decision to impose sweeping tariffs on imports has shaken financial markets, reflecting mounting concerns that economic growth will sputter even as the new levies drive up prices. While either scenario would be damaging on its own, some forecasters are warning that the US is increasingly at risk of facing recessionary and inflationary conditions simultaneously, a rare predicament known as stagflation.
Stagflation occurs when a slowdown in growth takes place alongside rising joblessness and accelerating inflation. Iain Macleod, a British politician, coined the term in 1965, combining the words “stagnation” and “inflation.” Plenty of economists once doubted stagflation was possible. That’s because slower demand typically limits how much businesses can charge for goods and services, capping prices. But it can occur if the economy faces new upward pressures on prices — tariffs, for example — that aren’t driven by rising demand.